Gazit-Globe going public in U.S., gets a boost

RobertDaniel

TEL AVIV (MarketWatch) — Gazit-Globe Ltd., a Tel Aviv real-estate developer, is going public in the U.S., and at least one prominent Israeli analyst likes the idea.

Free shipping boxes in retailers

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Free shipping offered by retailers can cost the firms revenue if they do not entice shoppers. Photo: Getty Images

The specialist in shopping centers with supermarkets as key tenants and in health-care properties filed with the U.S. Securities and Exchange Commission to offer and list 12 million common shares on the New York Stock Exchange. And the underwriters have an option on 1.8 million more shares if demand for the offering requires.

After fees and expenses, excluding the option, Gazit-Globe (GLOB) expects to raise $111 million from the deal, which it will use to reduce debt, buy properties and invest in subsidiaries.

At Sept. 30, 95% of its gross space was leased to retailers, and the majority was leased to tenants that provide consumers with non-discretionary products and services – in other words, things they can’t get along without.

That, says Elad Kraus of Harel Finance, makes Gazit-Globe a more stable company and a lower-risk bet than other real-estate firms.

The company is controlled 58.5% by Norstar Holdings Inc.; both are traded on the Tel Aviv Stock Exchange. After the Big Board offering, Norstar’s stake will drop to 54.3%. And excluding the option, 166.5 million Gazit-Globe shares will be outstanding.

In turn, Gazit-Globe, founded in May 1982, has a number of stakes in affiliates and subsidiaries, including 43.1% of Equity One,
EQY, +0.50%
which has U.S. operations, 49.6% of First Capital (FCR) of Canada and 47.8% of CityCon, (CTY1S) which operates in northern Europe.

Gazit-Globe owns and manages 660 properties in 20 countries, including the U.S., Canada, Brazil, Germany and Israel. “Our properties are typically located in countries characterized by stable GDP growth, political and economic stability and strong credit ratings,” the company’s SEC Form F-1 says.

Kraus notes that the offering will enable Gazit-Globe to reduce debt. And he says in a note dated Tuesday that the U.S. offering gives the company the flexibility to pay for acquisitions in stock rather than cash.

He rates the stock market perform with a 43.1-shekel target price.

But after he issued his note, the stock dropped a few percentage points and he’s reviewing that recommendation. The shares closed on Thursday at 36.8 shekels, down 0.7%. That gives the shares 17% upside to his current target price.

The risks the company cites include a weak economy, which could prevent it from increasing occupancy rates and rents.

Another one: Because the company’s properties are anchored by major tenants, and because some of those tenants provide a substantial part of the company’s revenue in some markets, an adverse development in their operations can hurt Gazit-Globe’s financial condition.

And raising capital can get tougher for the usual reasons: a market turndown, legislative changes, weaker results at the company itself and more.

Gazit-Globe is seeking the NYSE stock symbol GZT for its shares. Citigroup and Deutsche Bank Securities are leading the underwriters.

Around the TASE

The Tel Aviv Stock Exchange’s TA-25 Index closed on Thursday up 0.26% to 1070.73. That put the benchmark down 1.3% for the week and more than 19% for 2011 to date.

The TA-100 Index (TA100) finished Thursday at 973.56, up 0.28%. It was down 1.6% for the week and is down 20% for the year to date.

The Blue-Tech 50 Index, a mix of tech and biomedical shares, finished at 274.36, up 0.66% on the day and down 0.8% for the week.

Both Gazit-Globe and parent Norstar are members of the Tel Aviv Real Estate 15 Index, which slumped 3.8% for the week to close at 270.23. The property benchmark rose 0.59% on Thursday.

The Bank of Israel set the representative rate for the shekel on Thursday at 3.741 to the U.S. dollar, unchanged on the week. That leaves the Israeli currency weaker by 5.4% for 2011, having finished 2010 at 3.549.

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